Why Hallmark Is Betting It Can Create a New Cable Network

At a time when its bigger competitors are merging and looking for weak networks they can shed in a consolidated, skinnier and bundled TV world, the Hallmark channels are sending a different greeting to viewers and distributors.

In another old-school media move Hallmark is also creating a book publishing business, albeit a digital one, as its searches for more stories to turn into original movies and series.

Working from more of a digital age playbook, the company is also going direct to consumers with an over-the-top streaming subscription video-on-demand service called Hallmark Movies Now that will cost $5.99 a month or $59.99 a year and serve up the brand’s familiar family friendly content. It launches Oct. 3.

“We don’t think the linear television business is going away any time soon,” says Crown Media CEO Bill Abbott. "It will certainly evolve and change and what was once 100 million homes in terms of distribution will be significantly less, but that doesn’t mean that the appetite for good quality content will be any less. And we’re believers in that long-term strategy.”

Crown Media is able to make these counterintuitive moves partly because it is no longer subject to second-guessing by public shareholders. The company was taken private by Hallmark Cards in 2016.

Investing to launch a cable channel probably wouldn’t go over too well with stockholders and analysts, said Abbott, noting that the ideas of launching the Hallmark Channel in 2001 and Hallmark Movies & Mysteries in 2006 weren’t too popular in their time either but resulted in success.

Before the company went private, its ratings were up, ad revenue growth was at an industry-leading level and profits were rising thanks to its family-friendly original movies and series and its holiday-focused programming.

Research company Kagan sees Hallmark Channel’s cash flow rising 11% to $180.9 million in 2017. Net ad revenue is forecast to hit $358.1 million, up from $320.4 million.

At Hallmark Movies & Mysteries, Kagan sees cash flow increasing 14% to $85.2 million in 2017 from $75 million in 2016, when it jumped 66% from $45.2 million. Net ad revenue is expected to grow 16% to $133.5 million. But with a sub fee of just 1 cent per month, affiliate revenues are forecast to be $7.5 million in 2017.

The numbers back up Abbott’s contention that the Hallmark brand is strong enough to overcome the company’s disadvantage as an independent cable programmer. “We’re the Notre Dame of independents,” he said.

Viewers know and like the Hallmark brand. “You don’t have to sell it. You don’t have to market it all that much. We have great DNA in the drama area with Hallmark Hall of Fame and we certainly know how to make original content that resonates with a core audience,” Abbott said.

Abbott said he doesn’t have any commitments to carry the new channel yet. And he doesn’t have any major carriage agreements coming up for renewal soon. But he’s confident the new channel will resonate with distributors. “We’re confident we’ll be successful here,” he insisted. “The value proposition with distributors is very good.”

Consolidation on the distributor side could help Hallmark Drama get launched. “You can get there pretty quickly with a couple of deals where somebody feels good about carrying a quality brand that’s family friendly and a very low cost.”

More Aggressive Originals

Abbott said he plans to be more aggressive in stocking the new channel with original programming than Crown was when it launched Hallmark Movies & Mysteries.

“Frankly, we were fortunate that we were as successful as we were, being as conservative as we were at that time,” he said.

A big change that will let Hallmark be more aggressive in programming is Nielsen’s increased sample size, which makes it more likely to count viewers on smaller channels.

“They can begin to measure your channel at a much earlier stage with data that’s more reliable, so we have a way to monetize content when you’re in the 20 million-30 million home neighborhood,” Abbott said.

At first Hallmark Drama won’t have ads, just network promos.

“We have not positioned this within the upfront. We haven’t really given the pitch at all on the advertising side. So we need to go through it and get people comfortable with it,” he said, adding that when the channel does start airing commercials, it will have the lower ad load the company is planning for its other channels.

Putting the drama programming on the new channel will help Hallmark Movies & Mysteries.

“Every time we put a movie on there that’s not in the mystery genre we hear about it,” Abbott said. “And so the reality is we’ll make that network stronger by focusing on more mysteries.”

Over The Top

Hallmark’s big library will feed the SVOD service, which will feature programming that’s not on the linear channels.

“We made a conscious decision way back when that the vast majority of our content would not be available anyplace but our own channels. And we did that to be good partners with our distributors and also protect our advertising business,” Abbottsaid.

“So we’ve avoided I think the trap that some have fallen into over time of having that cash cow. Now we’re sitting in a position where we have quite a bit of content that can’t be seen anywhere else that we can take and go over the top with,” he said.

Decisions on which content will run on linear and which will be available on SVOD will be made based on factors including the time of year and how the content resonates on different platforms.

For example,Signed, Sealed, Delivered—a franchise that includes movies and a series of 10 one-hour episodes—will run on the SVOD service because it has a strong fan base, but its reruns don’t capture high ratings, Abbottsaid.

Abbottsaid he can’t say what the company’s expectation is for subscribers in the first year or two.

“It’s very hard to get information about how others are doing. It’s one of the frustrating pieces of the puzzle for us that those numbers are just not shared,” hesaid. “We have some internal ideas but we really don’t have anything we can state with any confidence.”

Hitting The Books

With its new channel and OTT service, Hallmark’s content needs will be increasing. That’s part of the reason why the company is getting into the publishing business.

"The digital publishing business that we are launching we are viewing as a great way for us to find authors who maybe are a little less well known and yet have creative ideas for books that they would like to get published,” Abbottsaid.

“We’ll publish them under the Hallmark publishing banner,” hesaid. “And then for the best of those we’ll turn those into movies.”

Some of the movies Hallmark has already made will also be turned into ebooks.

Abbott notes that the electronic publishing business is more efficient than the traditional book business.

The business will be launched in the fourth quarter. Different books will have different price points. Hallmark is also considering creating a subscription service or bundling its ebooks with its SVOD service.

The bottom line is that Hallmark may be small, but it is making some big moves.

“We’re making some not-insignificant bets here that we are going to be successful. At the same time the universe is evolving,” Abbottsaid.

He notes that Wall Street analysts have had mixed reviews about the proposed merger of Discovery Communications and Scripps Networks Interactive being an answer to issues facing the industry such as falling pay-TV subscriptions and slow ad sales.

“We’re believers in our brand,” Abbottsaid, pointing out that Hallmark has been around more than 100 years and Hallmark Hall of Fame has been a TV staple for 65 years.

“We don’t want to rule the world,” hesaid. “I don’t think it’s good for anybody to have five media companies that basically dictate the content people are going to watch and where they’re going to watch it. We’re unfortunately headed to a model that’s more like that than not. So I think that networks like ours and organizations like ours are very, very healthy for the overall environment and keep people honest to a degree.”